Tuesday, February 14, 2012

Sold 50 BMLPRJ at $18.9/Sold 50 VFH at $31.05/EXIDE Disappointment/Bought 100 of ZCN:CA at 16.85 CADs

Rick Santorum, one of the two likely GOP Presidential nominees, said recently that contraception is "a license to do things in a sexual realm that is counter to how things are supposed to be". usnews.com

When reviewing Santorum's book "It Takes a Family, a reviewer for the Philadelphia Inquirer commented that Santorum has "one of the finest minds for the thirteenth century". That is a bit harsh, more like an average mind for the 19 Century.

He believes that American liberals contributed to the Roman Catholic sexual abuse scandals. Fishers of Men

Santorum is also famous for his spirited defense of the Crusades, POLITICO.com, and his belief that climate change theory is a hoax perpetrated by the American left (i.e. anyone to the left of Lester Maddox) as "an excuse for more government control of your life". NYT The only American government likely to take more control over the average American's life is one headed by Santorum and his Theocrat colleagues of the American Taliban movement in Congress.

Santorum has stated that the U.S. should initiate a war with Iran by bombing their nuclear facilities. ABC He was of course an avid supporter of the Iraq War and even asserted that weapons of mass destruction had been found in Iraq, another example of reality creation common among members of his Tribe.  Rick Santorum - The War in Iraq I am not aware of how war mongering and Christianity, or at least his version of it, go hand in hand with the slaughter of actual human beings living outside the womb.

The latest Pew poll has Santorum ahead of Romney among likely Republican voters. Pew Research Center for the People and the Press  Bloomberg Obama beats both of them by about the same according to that poll.

In the U.S., there has always been powerful reactionary forces who have succeeded in falsely labeling themselves as conservatives. I roughly estimate that 25% to 30% of the adult population falls into that category. While Romney pretends to be a Conservative, or a moderate, or whatever he believes will help him in an election, Santorum is just another True Believer, a reactionary who falsely labels himself a conservative. By reactionary, I am referring to someone who wants to turn back the clock at least fifty years or as much as 150 on some issues. Anyone who believes otherwise is categorized as a "liberal" or worse.

Exelon (EXC), a recently added position, went ex dividend yesterday.

Moody's adjusted the ratings on 9 European sovereigns late yesterday.

S & P revised its outlook for Meritor to positive. TEXT: Reuters I own two Meritor bonds:  Bought 1 ArvinMeritor 10.625% Senior Bond Maturing on 3/15/2018 at 96  Bought 1 ArvinMeritor 8.125% Senior Bond Maturing 9/15/2015 at 93.5

1. Sold 50 BMLPRJ at $18.9 Last Thursday (see Disclaimer): I will trade the volatility of non-cumulative, floating rate equity preferred stocks. This security was bought a few days ago  at $16.8.

2012 BMLPRJ 50 Shares +$90.98
Snapshots of my trades can be found at the end of Advantages and Disadvantages of Equity Preferred Floating Rate Securities. I include AEB in this category of floating rate equity preferred stocks, even though it is cumulative and is in effect a junior bond. For a U.S. taxpayer, that European hybrid pays qualified dividends rather than interest, making it more similar to traditional equity preferred stocks than to bonds. Aegon Hybrids: Gateway Post

Bank of America Corp. Dep. Shs (Rep. 1/1200th interest of a share of Fltg Rate Non-Cum Pfd Series 4) (BML.PJ) closed at $19.35, up 51 cents for the day. It was ex dividend yesterday. I still own 100 shares.

2. Sold 50 VFH at $31.05 Last Thursday (see Disclaimer): I decided after a moment's reflection that I prefer to concentrate on individual regional bank stocks. This ETF is heavy into large financial institutions that have a host of problems flowing from their activities during the housing bubble years.  Since I bought this ETF in a Vanguard brokerage account, I did not pay any brokerage commission on either the buy or the sell. I bought the shares at $29.2. Bought 50 of the Stock ETF VFH at $29.2 (1/18/12 Post).

Vanguard Financials ETF closed at $30.98 yesterday.

3. Added 100 of the Canadian Stock ETF ZCN:CA at 16.85 CADs Last Thursday  (Canadian Dollar (CAD) Strategy)(see Disclaimer): This is a Canadian stock ETF traded on the Toronto exchange. I used my existing CAD stash to make the purchase. It is a  low cost ETF that owns 60 of the large Canadian companies.

For investors familiar with large Canadian companies, this ETF would be weighted in financial (33.4%) and natural resource stocks (energy & materials=49%). The expense ratio is .15%: BMO Dow Jones Canada Titans 60 Index ETF

I have a lot more confidence in the large Canadian banks than any large U.S. financial institution so often run by those that I charitably call Masters of Disaster, the highest paid and biggest doofuses in the history of civilization. 

This is a snapshot of the weightings as of 2/8/12, where the position is greater than 1% of total assets:


This recent article discusses many of the justifications for my Canadian Dollar Strategy.  MarketWatch

Barlcay's favors Canadian stocks, given that the Canadian economy looks stronger than the U.S. with lower unemployment. Barrons.com

BMO Dow Jones Canada Titans 60 closed on the Toronto exchange at 16.71 yesterday.

4. Exide Earnings & S & P Revises Credit Outlook to Negative (own common as TC and two senior secured bonds: FINRA): The consensus estimate for Exide's fiscal third quarter was for an E.P.S. of 24 cents on $848.47M in revenues. The company did not even come close. While the company reported a GAAP E.P.S. of 84 cents per diluted share for its third fiscal quarter, most of that was related to extraordinary tax related issues.  Net sales were reported at $784.051 million, badly missing the consensus estimate. Exide's CEO blamed Europe and the weather. Operating income for the 4th quarter was reported at $22.5M, down from $47.3M in the 2010 4th quarter. SEC Filed Press Release

While the company did not provide an E.P.S. figure without the tax items, I estimate that it would have been $.096 cents per diluted share ($68.215M in GAAP net income minus $60.313M in the tax benefit=$7.902M dividend by 81.61M diluted shares=$.096). I would add that I do not have any training any accounting and would not rely on that calculation myself. I expect the reporting company to provide me with that information. The author of an article found at Seeking Alpha claims that the number was 6 cents excluding extraordinary items. Whatever, either way, it was still a poor quarter.

More troubling that the earnings and revenue misses, the company is devouring cash. The company reported that it used $73.1 million in cash for the nine months ending 12/31/2011, compared to a cash generation of $22.9 in the comparable prior 9 month period. The CEO claims that the cash was needed to fund working capital, higher capital investment to fund additional AGM battery capacity and NAAQS regulatory compliance. The company believes that free cash flow will be positive in the current quarter. I am most concerned about this issue as an owner of Exide's senior secured bond.

Another troubling sign is that the market capitalization of the company is substantially less than Exide's debt. The market capitalization at a $3 share price is around $237M, while the long term debt was $755.648M as of 12/31/11. Form 10-Q Of that amount the senior secured note has an outstanding balance of $675M. I view that as a negative sign post.

The company also announced that it would not be giving earnings guidance for the foreseeable future and would expect its earnings for fiscal 2012 to be below its previous forecast, which is not surprising given the miss for its fiscal 2012 third quarter. The conference call, available at Exide's web site, lasted for 1:31:48, longer than most.

Looking at the compensation for the executives at this company,  I would suggest that all of them are in need of a minimum 50% cut, based on the performance of this company. Compensation packages among executives is way too generous given the poor performance of this company.  BusinessWeek calculates that the CEO James R. Bolch receives over $11 million in total compensation which is just absurdly ridiculous. I certainly intent to vote against their compensation levels when presented with the advisory vote.  Whenever I see compensation for this kind of performance anywhere near that number, I will vote "no" in the advisory vote regarding executive compensation.

On the first trading day after the earnings release, the stock was among the leading losers on Nasdaq, declining 24.06%, giving up most of the gains since I purchased 70 shares as a Lottery Ticket last December. Bought 70 XIDE as LT at $2.75 That kind of movement justifies the LT tag.  I am more concerned about the senior secured bond which fell about 7% in trading last Friday. At last Friday's closing price (79.187), that bond had about a 10.9% current yield and a 13.87% YTM.

Exide Technologies continued its abrupt decline based on the unsatisfactory earnings report, closing at $2.88 in trading yesterday.

Late yesterday, S & P revised the outlook on Exide's debt to negative. TEXT at Reuters According to S & P, there is a one in three chance "that Exide's credit metrics, free cash flow, and liquidity could drop below the levels that might lead to a downgrade". 


  1. Mr Geezer--As an avid follower of your daily blog, your use of the Canadian markets continuously raises the question about how you handle the Canadian investment tax, which as I understand can take a bite out of earnings. Or perhaps I am misunderstanding.

  2. Unfortunately, I have always prepared my own income tax return since I would not pay anyone to handle that task. I would likely hyperventilate after seeing the bill.

    I allow TurboTax to handle this issue. I will receive a credit on my income tax return for the Canadian taxes paid. So the Canadian 15% withholding tax does not eat into my return as long as I have a federal tax liability before that credit. More information on this subject can be found in Publication 514 from the IRS.

    The return of any foreign security for a U.S. taxpayer will be impacted by the currency exchange rate and the fluctuation in value of the pertinent security in its host market. This would be true irrespective of whether the security is purchased in ADR form or ordinary shares purchased directly in the foreign exchange.

  3. I would add that all of my foreign securities are held in a taxable account. If you own a Canadian security in a retirement account, you can not claim a credit for the tax paid to Canada and that would eat into your returns.

    I have read a claim, most recently by Richard Lehmann, that it is possible to obtain a refund of the Canadian tax when paid by a security held in a retirement account. I discuss that contention in connection with Enerplus in an earlier blog. I can not vouch for that contention. If the broker will do it for you, then you may want to check on that before buying the security. It would be way to much trouble for me to make an application directly to the Canadian tax authority to obtain a refund under these circumstances.

    Many years ago, I can say that I owned on occasion a foreign security in my IRA and the broker never refunded the tax.